I have received lots of questions of why the market hasn't dropped to a more palatable level. Usually this time of the year we will see a dropoff in the market as exports to China and India shift from the United States to South America and planting intentions are published.
Providing price support are:
- Crude oil is trading between $80 and $85/barrel.
- Exports from United States have already exceeded the total for all of last year--which was the previous record.
- Argentina's strike in early April
- China's refusal to buy soy oil from Argentina because of the level of solvents used in the processing of their soy oil. Argentina maintains that China is retaliating for trade restrictions imposed by Buenos Aires on manufactured imports last year.
- Strength of the Brazilian dollar
- Argentine and Brazil are using more soybean oil for methyl ester production leaving a larger share of the export market to the U.S.
- World soybean oil stocks are projected to decrease for the third consecutive crop year.
Downward pressure is coming from:
- Soybean plantings will be up 1.3% from 2009
- Planting progress is 13 - 17% complete, ahead of the average pace for this time of the year.
- Supplies of crude oil are extremely high
- China is purchasing from Argentina again
- Record crops of soybean in South America
When you look at these two lists you can see how they push and pull at each other causing the minor ups and downs in the market but leaving soybean oil hovering between 0.38 and 0.40. Looking forward there are a couple items that could tilt the pricing of soybeans. The oil leak in the Gulf. While this wasn't a working rig this disaster could lead to speculation in the market of more controls in offshore drilling possibly slowing down exploration of oil in the Gulf and leading to a perceived shortage in supply in future years. The second is if exports to China and India shift to South America. Finally there are the seasonal concerns this time of year regarding planting progress and mother nature.
For the next while I expect much of the same to a little lower.